US vice president Joe Biden earlier said the aircraft was "blown out of the sky" and it was "not an accident".

Foreign Affairs Minister Julie Bishop says 28 Australians were on board the plane but says the number could he higher. Some of the passengers were due to fly onwards to Melbourne, many of them to attend next week's international AIDS conference in the city.

Prime Minister Tony Abbott told Parliament that it appears Russian-backed rebels were behind the tragedy and called on Moscow to cooperate with an international investigation into the cause of the plane's downing.

"The trampling of justice and decency in the pursuit of national aggrandisement and reckless indifference to human life should have no place in our world," Mr Abbott said.

"As things stand, this looks less like an accident than a crime. And, if so, the perpetrators must be brought to justice," he said.

"We owe it to the dead and their families. We owe it to the peace and stability of the wider world to establish the facts and we will do all we humanly can to bring that about.

Nationalities of MH17 passengers

Netherlands: 189*

Malaysia: 44 (including 15 crew)

Australia: 28**

Indonesia: 12 (including 1 infant)

UK: 9

Germany: 4

Belgium: 4

Philippines: 3

Canada: 1

New Zealand: 1

Unverified: 3

*N.B. One victim was a dual US citizen**N.B. DFAT says 28 Australians were on board; Malaysia Airlines says 27 Australians were on board

Source: Malaysia Airlines

"Let me conclude with this: the bullying of small countries by big ones, the trampling of justice and decency in the pursuit of national aggrandisement and reckless indifference to human life should have no place in our world."

Earlier Ukrainian president Petro Poroshenko said the downing of the airliner was an act of terrorism.

Media reports suggest the aircraft was downed by a Buk ground-to-air missile.

Russia's Interfax news agency says pro-Russian separatists have claimed to have found the plane's black box.

Malaysia Airlines said flight tracking data indicated the plane was at its cruising altitude of 33,000 feet (10,000 metres) when it disappeared.

The BBC quoted one farm worker in the area as saying: "I was working in the field on my tractor when I heard the sound of a plane, then a bang and shots."

Another said: "There was thick black smoke from a nearby factory. From my balcony I saw a plane begin to descend from a great height and then heard two explosions."

The disaster comes just four months after Malaysia Airlines lost contact with flight MH370, another Boeing 777 carrying more than 200 people. The fate of that aircraft remains a mystery.

On Twitter, Mr Poroshenko described the incident as an attack by terrorists.

Malaysian prime minister Najib Razak said he was "shocked".

"I am shocked by reports that an MH plane crashed," he said on his Twitter account. "We are launching an immediate investigation."

The White House says US president Barack Obama has ordered senior US officials to remain in close touch with Ukrainian officials about the downed plane.

Mr Obama has spoken to Russian president Vladimir Putin about the crash.

"The Russian leader informed the US president about an air-traffic controllers' report that came just before their phone conversation that a Malaysian plane crashed in Ukraine," the Kremlin said in a statement.

Other airlines are now avoiding east Ukrainian air space, including Germany's biggest airline Lufthansa.

"Lufthansa has decided to avoid the east Ukrainian air space by a wide margin with immediate effect," a company spokesperson said.